What determines debt intolerance? The role of political and monetary institutions

Raffaela Giordano () and Pietro Tommasino

No 700, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Why do some states default on their debt more often than others? We argue that sovereign default is the outcome of a political struggle among different groups of citizens. It is more likely to happen if: (i) domestic debt-holders are relatively weak; (ii) the the political costs of the financial turmoil typically triggered by a sovereign bankrupcy are small. We show that these conditions are in turn more likely to be present if a country lacks a well-developed financial system and/or a sufficiently independent central bank.

Keywords: fiscal sustainability; political economy; bank runs; central bank independance; financial development (search for similar items in EconPapers)
JEL-codes: E51 E52 H63 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-mac and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: What determines debt intolerance? The role of political and monetary institutions (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_700_09

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